The Accounting Scandal of Waste Management Inc

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Transcript of The Accounting Scandal of Waste Management Inc

Accounting Scandal Waste Management Inc Let's get into the details... How it all started... How did it all happen? Waste Management Inc is a company in North America that provides waste and environmental services. This company was founded by Larry Beck in 1894. The company's operations also involved managing air and gas, environmental and groundwater protection as well as environmental engineering. By 1971, the company became more public after the 133 acquisitions and the $82M in revenue that were made and soon became the largest waste hauler in the country. This Company offered environmental services to almost 20 million customers in America, Canada as well as Puerto Rico. Waste Management soon took the position of becoming "North America’s largest residential recycler." It was able to handle and manage more than 8.5 million tons of materials. These "materials" included plastic, metal, glass, electronics and paper at 128 different facilities. Waste Management Inc did unfortunately go through a massive financial fraud between the years of 1992-1997 that was committed by the following senior officers: Dean L. Buntrock, Phillip B. Rooney, Thomas C. Hau, Herbert Getz, James E. Koenig and Bruce D. Tobecksen.The 6 men had all took part and played a role in creating this financial fraud which lasted for more than 5 years. "For years, these defendants cooked the books, enriched themselves, preserved their jobs, and duped unsuspecting shareholders", said Thomas C. Newkirk who was the associate director of the SEC's Division of Enforcement. According to the complaint, the defendants had violated federal security laws by creating financial misstatements to achieve their goal in meeting "predetermined earnings targets." Why was the fraud committed? The company's revenues were not increasing fast enough, so the defendants had decided to avoid depreciation expenses on their garbage trucks, assign approximate salvage values to other assets that previously had no salvage value, refrain from recording expenses for any decreases in the value of landfills, refuse to record necessary expenses to write off the costs of unsuccessful and discarded landfill development projects, improperly capitalize a variety of expenses, and increase environmental reserves to avoid irrelevant operating expenses. Who's at stake? The stake holders of this case would be Dean L. Buntrock, Phillip B. Rooney, Thomas C. Hau, Herbert Getz, James E. Koenig and Bruce D. Tobecksen. These are the people that have something to lose as a result of the issue knowing that they got caught for their improper financial statements and fraud. Their jobs were at stake considering how they had this financial fraud going on for over 5 years and so now they were at risk of losing their jobs. By losing their jobs, it leads to many other problems and downfalls which begins to involve family problems/issues and etc. Getting into more detail regarding family problems/ issues, an example of a family problem would be the family name. Knowing that this issue had went worldwide and was found all over the internet and daily morning newspapers, this was able to potentially ruin the family name, which would cause disappointment to the rest of the family members as well as family fights. The Aftermath.. As a result of the issues, the defendants' improper accounting practices were brought to corporate headquarters. They were charged with "making false and misleading statements about the company's accounting practices, financial condition, and future prospects in filings with the Commission, reports to shareholders, and press releases." They were also charged for making "accounting manipulations known as "netting" and "geography" to make reported results appear better than they actually were and avoid public scrutiny." Cont'd Knowing how this had been going on for over 5 years, when the new CEO had ordered for a review of the company's accounting practices, the review had initially led to the company's financial statements during 1992 through the third quarter of 1997. After restating the financial statements, it came to the company's attention that the financial statements had misstated its pre-tax earnings by approximately $1.7 billion. This was the largest restatement in corporate history and because of this fraud, the company had lost over $6 billion in the market value of their investments. This also led to a major drop in stock price. So in the end, the defendants go charged and the company was left with the largest restatement of $6 billion. The Accounting Improperties Right now you'd be thinking.. so far so good right? This company also went through having one of the most intolerable, preposterous, outrageous accounting frauds ever to be seen and this was only just the beginning..... An Ethical Perspective From an ethical perspective, I believe that the punishment does in fact fit the crime. Knowing that an ethical perspective has to do with a person’s views on what's right and wrong, what the defendants had done in this case was definitely wrong and the punishment they received was well deserved and right. Creating financial mistatements for over 5 years for a successful company is not a smart thing to do and is definatly not beneficial to the company in any way. In this case, what the defendants had done that was wrong was, making the poor desicion of committing a financial fraud just to reach their "predetermined earnings target". It was wrong of them to incorrectly do their accounting practices and disrupt the company's balanced and honest accounting statements. From an ethical perspective, i believe that the charges that were given to the defendants' were very fair and reasonable. Take Action! Things that should be done to keep the issue from arising again would be to always check on the accouting and financial statements monthly to reassure that they are being done correctly and honestly. By having frequent check ups, you are sure to avoid any type of fraud or mistakes that could potentially affect the company and entire business itself. The CEO of the company should take action towards this kind of situation. As well as the Ontario Securities Commission and other companies that keep track of financial statements such as PWC (Private Company Services) that specifically deals with financial statements.